$ 28 and 29 IN HIGH COURT OF DELHI AT NEW DELHI Judgment delivered on: 30.04.2015 W.P.(C) 6265/2013 and 6326/2013 M/S SHIVNANDAN BUILDCON PVT. LTD ..... Petitioner versus COMMISSIONER OF INCOME TAX & ANR ..... Respondents AND M/S OMSHIV BUILDTECH PVT. LTD. ..... Petitioner versus COMMISSIONER OF INCOME TAX & ANR ..... Respondents Advocates who appeared in this case: For Petitioner : Mr Parag Tipathi, Sr Advocate with Mr Kunal Bahri and Mr Ankit Verma, Advocates For Respondents : Mr N.P.Sahni, Advocates CORAM: HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE SANJEEV SACHDEVA JUDGMENT BADAR DURREZ AHMED, J (ORAL) 1. These two writ petitions raise common issue and, therefore, are being taken up together. facts of W.P.(C) No.6265/2013 shall be referred to. WP(C) 6265/2013 and 6326/2013 Page 1 of 8 2. assessment year concerned in both petitions is assessment year 2009-10. present writ petitions are preferred against orders passed by Commissioner of Income Tax under Section 264 of Income Tax Act, 1961. In W.P.(C) 6265/2013, assessee had filed his return of income declaring loss of income of Rs.32,934/- on 25.09.2009. assessment under Section 143(3) was completed on 12.12.2011, by Assessing Officer at income of Rs.18,99,070/- as against above mentioned loss. In assessment order, addition of Rs.19,32,000/- on account of notional interest earned on advances given to Smart Tourist Private Limited was made. petitioner is aggrieved by fact that said addition did not have any factual basis and it is for this reason that petition under Section 264 of said Act was filed before Commissioner seeking revision of assessment order on account of said addition. 3. considerations and findings of Commissioner of Income Tax are as under:- 5.1 I have carefully considered petition u/s 264, submissions of assessee, comments of Assessing Officer and assessment records of assessee. In his petition reproduced ante, in clause (ii) and (iv) appellant has raised objections on addition of Rs.19,32,000/-, on account of notional income on advances. In clause (i), (iii), (v), (vi), (vii) and (viii) assessee has raised general legal objections I observations which are not required to be separately addressed and will be considered while discussing factual issues. 5.2 only issue involved is on addition of Rs.19,32,0001- on account of interest @ 2% on advances of Rs.1,61 ,00,0001 given to M/s Smart Tourist Pvt. Ltd. assessee had given advance of Rs.l,61,00,0001- to M/s Smart Tourist Pvt. Ltd on 09.04.2007(F.Y. 2007-08 and A.Y. WP(C) 6265/2013 and 6326/2013 Page 2 of 8 2008 09). This advance was reportedly given for purchase of land. This advance was shown as outstanding on 31.03.2009. addition in A.Y. 2009-10 was made based on assessment of preceding year. While making addition of interest @ 12% on these advances, A.D. has stated as under in assessment order for A.Y. 2008-09: " assessee has given Loan & Advances ofRs.1,61,00,000/- to M/s Smart Tourist Pvt. Ltd on 09.04.2007. There is no explanation why assessee has given loan to above concern out of its funds and no interest has been charged for this loan. In absence of any explanation, evidence regarding identities of parties and purpose of loans, notional interest at 12% per annum is charged on loan amount given. Sum of Rs. 19,32,000/- is added to total income as notional interest on loan/ advances given. Penalty proceedings u/s 271 (l) (c) for concealment of income and for furnishing inaccurate particulars of income are initiated separately. " 5.4 Assessing Officer has noted that agreement to sell evidencing such advance against land has not been filed. He has further noted that identity of parties has not been established. addition in assessment of 2009-10 has been made on basis of findings given in assessment of earlier year i.e. A.Y. 2008-09. assessee's main contention is that since assessment in 2009-10 on this issue is based on order for earlier assessment of A.Y. 2008-09, this assessment should also be set aside u/s 264 as earlier assessments were set aside u/s 264. In this connection, I have carefully perused order u/s 264 dated 16.03.2012 of my Ld. Predecessor. assessment of A.Y. 2008 ')9 was set aside by then Ld. CIT. In tabular chart given in order u/s 264 dated 16.03.2012, it is seen that 4 issues were identified. Interest on advance for purchase of land was only one of issues. Even on this issue, Ld. CIT has noted comments of incumbent A.D. WP(C) 6265/2013 and 6326/2013 Page 3 of 8 stating that action of A.D. in making said addition cannot be said to be unreasonable. 5.5 I had also called for records of A.Y. 2008-09 and have examined them. I noticed that reassessment proceedings u/s 144 r.w.s. 153A r.w.s. 264 have been concluded by Assessing Officer on 08.03.2013 and he has again made addition stating as under:- "10. assessee during year, has given loan and advances of Rs.1,61,00,00/- to M/s Smart Tourist Pvt. Ltd on 09.04.2007. assessee during re-assessment proceedings, as filed copy of ledger account of assessee and in said ledger account remarks has been made that confirmation being enclosed, but ongoing through entire annexures no such confirmations has been filed by assessee. assessee has also not given any explanation why said loan was given to above concern out of its funds and no interest has been charges for this loan. In absence of any explanation, evidence regarding identities of parties, purpose of loan, notional interest @ 12% per annum is charged on loan amount given. Accordingly, sum of Rs.19,32,000/- is added to total income as notional interest on loan/ advance given. Penalty proceedings U/s 271(l)(c) of Income Tax Act is initiated for concealment of income and for furnishing of inaccurate particulars " 5.6 assessee's main argument that order u/s 143(3) for 2009-10 may be set aside on grounds that earlier orders on same lines have been set aside has no force behind it. Firstly, earlier orders were set aside by my Ld. Predecessor after considering many issues, and impugned issue was only one of issue. Even on this issue, my Ld. Predecessor had noted comments of Assessing Officer about correctness of addition and has not given any specific finding. On perusal of records of A.Y 2008-09, I notice that assessee has again failed to furnish documents like agreement to sell and WP(C) 6265/2013 and 6326/2013 Page 4 of 8 valid confirmations in support of its contentions. Even during proceedings u/s 264, assessee has not furnished these vital details. On objective consideration of facts and circumstances of this case, I am of opinion that Assessing Officer was justified in making this addition and therefore, I refuse to interfere in orders of Assessing Officer on this issue. 5.7 In view of above discussion, I am satisfied that this is not appropriate case for interference in exercise of revisional powers u/s 264. Accordingly, revision application u/s 264 filed by assessee is hereby rejected. 4. On going through reasoning adopted by Commissioner of Income Tax, it appears that only reason why addition was made was on account of fact that no explanation has allegedly been given by assessee as to why loan/advance was given to Smart Tourist Private Limited. It was also noted that identity of Smart Tourist Private Limited was not known. logic that seems to have been applied by revenue authorities is that petitioner was businessman and it would be imprudent for businessman to advance sum of Rs.1.6 crores as in case of W.P.(C) 6265/2013 to Smart Tourist Private Limited and to not charge anything in return. explanation sought to be given by petitioner in both these cases was that advances were made in course of their business and it is not at all necessary that advance given by businessman at all times must have element of interest also. There are various other considerations which come into calculations when businessman advances money to another. It is not at all necessary that interest must be charged. It was further submitted by learned senior counsel appearing on behalf of petitioners that there is no finding in assessment orders WP(C) 6265/2013 and 6326/2013 Page 5 of 8 or in order of Commissioner of Income Tax that petitioners had, in fact, received some amount by way of interest and that such amount was not shown in accounts. It is also contended that revenue authorities have not rejected books of accounts of petitioner. It was, therefore, submitted that unless and until there was concrete finding that something was received by petitioner from said Smart Tourist Private Limited and other persons similarly situated, nothing can be added by way of notional income. reference was made to decision of Guwahati High Court in B and Plantations and Industries Ltd. v Commissioner of Income Tax: 242 ITR 22. relevant portion of that decision reads as under:- As regards addition of notional interest assessee made interest free advance of Rs. 19,58,256 to Jorhat Investments Ltd., which is sister concern. case of assessee is that they did not charge interest on that advance and in consideration of same assessee got premises at very low rent of rupees two per sq. feet in prime locality of Calcutta. 15. Assessing Officer added notional interest of 18 per cent. on advance amount and added income as amount of interest. said addition was approved by Commissioner of Income Tax (Appeals) and Tribunal. 16. In this case there is no finding when assessee had in fact received interest or that Jorhat Investments Ltd., had in fact paid interest to assessee and interest was not reflected in accounts. finding is that assessee ought to have charged interest. WP(C) 6265/2013 and 6326/2013 Page 6 of 8 17. facts in instant case are more or less identical with case of Highways Construction Co. Pvt. Ltd. v CIT [1993] 199 ITR 702, wherein this court held (page 708) : "There is no finding of fact to effect that actually loan had been granted to managing director or any other person on interest, or that interest had actually been collected and collection of interest was not reflected in accounts. finding of Income Tax Officer is that assessee ought to have collected interest. In other words, view of Income Tax Officer, which has been accepted by Tribunal, was that assessee, as good business concern, should not have granted interest-free loan, or should have insisted on payment of interest. If assessee had not bargained for interest, or had not collected interest, we fail to see how Income Tax authorities can fix notional interest as due, or collected by assessee. Our attention has not been invited to any provision of Income Tax Act empowering Income Tax authorities to include in income, interest which was not due or not collected. In this view, we answer question No. (ii) in negative, that is, in favour of assessee and against Revenue." 5. On going through said decision, it can be discerned that Guwahati High Court held that there was nothing to show that assessee had, in fact, received interest or that company to whom loan was given had, in fact, paid interest to assessee. There was also nothing on record to show that alleged interest was not reflected in accounts. only finding recorded was that assessee ought to have charged interest. Referring to earlier decision of Guwahati High Court, in Highways Construction Co. Private Limited v. CIT: [1993] 199 ITR 702, Court observed that their attention had not been invited to any provision of WP(C) 6265/2013 and 6326/2013 Page 7 of 8 Income-Tax Act empowering income-tax authorities to include in income, interest which was not due or not collected. 6. In similar vein, when we asked Mr Sahni, who is appearing for respondent to point out some provision of Income Tax Act, whereunder such notional interest could be made subject matter of tax, only reference he made was to Section 144 of said Act. However, we are clear that Section 144 does not at all apply to present proceedings because present proceedings originate from assessment under Section 143(3) of said Act. 7. In absence of any specific provision under which so called notional income on advances, could be brought to tax, we do not see as to how impugned orders passed by Commissioner of Income Tax can be sustained. 8. Consequently, we allow these writ petitions. impugned orders are set aside. addition on account of notional income on advances is deleted. These writ petitions have been decided only in respect of respective assessment orders for assessment year 2009-10 and will not have any bearing on other assessment years, facts of which we have not examined. BADAR DURREZ AHMED, J SANJEEV SACHDEVA, J APRIL 06, 2015/sv WP(C) 6265/2013 and 6326/2013 Page 8 of 8 M/s Shivnandan Buildcon Pvt. Ltd. v. Commissioner of Income-tax & Anr